http://www.jewishworldreview.com --
IN HIS recent book about the Greenspan Fed, "Maestro" author Bob Woodward
makes clear that during the Clinton-Rubin days the Fed chairman believed they
were all working for the same firm.

Well, the firm has changed. And so has Greenspan's policies.

In the past three weeks the veteran central banker has completely
flip-flopped on two vital issues. First, on January 3 the Fed made a
360-degree about face from fighting inflation to fighting recession. Second,
on January 25 the chairman testified before Congress that it is now okay to
use budget surpluses for tax cuts.

In both cases Greenspan cited a rapidly deteriorating economy which he
described as "very close to zero." But so far he has yet to tell the public
exactly why the economy is faltering.

Could it possibly be that the Fed's prior policy mistakes have something
to do with the "very close to zero" economy? The fact that last year they
deflated liquidity and raised interest rates far beyond reasonable bounds has
not yet entered into the discussion. But it should.

Last year Fed officials blamed stock market increases, low unemployment,
rapid economic growth and even at one point fingered productivity advances as
inflationary threats. Ordinary Americans were baffled at this logic, as main
street folks believed prosperity to be a good thing, something to be desired,
not squashed.

But the Fed stubbornly carried on its extreme tightening policies, even
while the much ballyhooed inflation failed to materialize. Now those
chickens are coming home to roost. When asked about the downturn, Greenspan
blamed "an inventory liquidation process." While this is technically true,
it avoids causality.

Recessions or downturns are not born of immaculate conception, but bad
policy mistakes or major external shocks to the economic system. While the
OPEC oil price hikes drained about $100 billion from U.S. GDP, and income tax
bracket creep caused a roughly $100 billion transfer of resources from
private hands to government coffers, the Fed's overly tight credit policy is
the real culprit in the "very close to zero" scenario.

It is doubtful that Chairman Greenspan will ever acknowledge this before
Congress or anywhere else. And it is equally doubtful that the central
banker will ever appear before a news conference and submit to the kind of
detailed questioning that other senior policymakers in the government
routinely submit to.

No one will ever know whether political gamesmanship or economic analysis
are responsible for the Fed's huge policy U-turns on taxes and money. One
can only wonder if Al Gore had won the presidency would Mr. Greenspan be
endorsing broad-based tax cuts.

While media commentators continue to cling to the fiction that Greenspan
did not endorse George Bush's tax-cut plan, they have a hard time explaining
the supply-side language used by the chairman that tax rates should be
sufficient to meet spending commitments "while doing so in a manner that
minimizes distortions, increases efficiency, and enhances incentives for
saving, investment and work."

Clearly Greenspan is talking about lower personal tax-rates, not a
Gore-like flood of inefficient and economically distorting tax credits that
have no long-term impact on work or investment incentives. The mere
Greenspanian mention of incentives links to the Bush tax-cutting approach.

In the course of his testimony Greenspan noted that new Congressional
Budget Office projections of future surpluses are so huge that the federal
government will be able to retire all the outstanding Treasury debt and still
have so much unused cash that it would have to start buying up
privately-owned corporate stocks and bonds.

Because he wants to avoid politicizing federal fiscal policy, he'd rather
send the surpluses back to the taxpayers. Endorsing another Bush policy,
Greenspan opened the door wide to shifting huge Social Security surpluses
into privately-owned investment accounts.

But in fact Greenspan and everyone else knew about these massive budget
surplus estimates six months ago. And most everyone outside the Federal
Reserve and its circle of acolytes knew that excessively tight monetary
policy would bring the economy to its knees.

Why didn't the Fed and its chairman move six months ago? Well, the
political winds hadn't yet shifted. Now they have. At least the chairman is
reading the right tea leaves. It's never too late to implement good
policies. Let's hope he stays the
course.